Three Additional Potential Key Impacts of the CARES Act Expiration for Students and Schools The CARES Act has been a positive relief to help students and families through this unprecedented time. However, when student loan repayment suspension ends, it will set up an unusual set of challenges for students and Financial Aid Offices. In our previous article, Five Key Potential Impacts of CARES Act Expiration for Students and Schools, we covered the overlying potential challenges as they relate to suspension expiration. As the suspension extends, we’ve added three more potential challenges as we look into future impacts. As a reminder, FFEL Loans and private loans held by lenders are not included in these changes. Revisiting the First Five All delinquent borrowers as of March 13, 2020, were brought current and will be kept current until the suspension expires. Some borrowers were in a suspended status such as a deferment or forbearance and with the provisions of the CARES Act, these borrowers may not be engaged until after the suspension expires. Massive job loss for both student borrowers and parents means it is likely there will be more borrowers unable to start repayment and will need to determine a repayment plan option that fits within their budget once the Act expires. Increased number of borrowers renewing IDRs at the same time since under guidance from the United States Department of Education, IDR plans that expire after March 13, 2020, but before the Act expiration will automatically have their renewal deadline extended. Based on previous experience with natural disasters, it is predicted that when repayment resumes, there will be an influx of delinquent borrowers needing guidance at the same time. As the suspension continues to be extended, the short-term resolve extends its impact well into the future, even for those students that were not in a repayment position to realize their personal impact. Many borrowers are in between their repayment right now, but in the traditional sense, the suspension also impacts students who were in their grace period. Students that dropped below half-time after April 1, 2021, will not have an extension in their grace period and may be confused as to when they start paying. Without guidance, these students may not even know where to start with their financial situation that has been fluid in the last few months. Those who’s grace started before April 1, 2021, will have some delay, but still may fall through the cracks due to having barely started the process before it was put on hold again. Alternatively, as borrowers exit grace periods or education-related deferments, they may briefly enter repayment before being transitioned to the CARES Act mandatory administrative forbearance. This is also a challenge overall since the resume date is between semesters and each servicer will determine when payments should begin. Falling behind on student loan repayments has a lasting impact on students. Default can wreck their credit and make them ineligible to receive additional student aid. Even worse, students can end up with garnished wages or even have their tax refund withheld. Students who are struggling now will have an even tougher hill to climb as their debt compounds with possible collection fees, increasing interest or being sued for the entire amount at once. The suspension gave students a break and schools too, and maybe even a false sense of security, but as you continue to look down the road, diligence needs to be taken to prepare for long-term issues. The 2018 and 2019 cohort years will be impacted significantly by the suspension of payments and the 2020 cohort year, may as well, for Federal Stafford WDF Student Loan borrowers from March 13, 2020 through October 1, 2021. CY2018 – Everybody that was delinquent as of March 13, 2020 was brought current and kept current through the end of the cohort year September 30, 2021. The impact is that the rate was frozen as of March 13, 2020. CY2019 – This cohort year is even more impacted by the suspension of payments. As with the 2018 rate, all borrowers were brought current and kept current as of March 13, 2020. Remember that 2018 only had about the last 6 months stopped. However, 2019 has a bigger impact because of timing. Payments were stopped from March 13, 2020, through December 31, 2020, so no defaults or delinquency could occur during this time. If payments restart on October 1, 2021, because it takes 270 days to default, no one will default from the 2019 cohort year before September 30, 2021 (end of cohort year), so this rate will also be frozen. CY2020 – Significantly impacted in a negative way for a variety of reasons: Many people have been impacted by COVID-19 and need help, but have not been in contact with their loan services for a long time. With the extension to September 30, 2021, the 2020 Cohort will have a very limited window to become delinquent with enough time to default before the cohort window closes. The delinquency rate and curve will show up later in the cohort year than it has in the past, because a borrower who entered repayment on October 1, 2019, will not restart repayment until October 1, 2021. These borrowers would have already been defaulting if they had not made payments and they are not even delinquent yet.